Selected papers~ SPECIAL EDITION - Index of

that does not adequately consider risk: If the
true risks involved in these subprime
mortgages or default insurance had been
priced into these products, they would never
have been rated the way they were. Investors
would have been much more wary and
demanded much higher yields before buying
them, which would have forced the mortgage
brokers to be more careful in deciding to
whom to give these mortgages and the banks
to be more careful in choosing which ones to
bundle. (Friedman 2009, pg. 15).
While pricing of products might be viewed as
a marketing issue, under IFRS and accounting
standards of most industrialized countries,
valuation of the cost of the products sold and
the inventory of buyers would require an
adequate risk assessment to measure amounts
in financial statements of both sellers and
buyers. Furthermore, the principle of going
concern applies to all valuations in financial
statements and underpricing of financial risk
raises serious issues of going concern. The
going concern principle is essentially the
same as sustainability when making financial
accounting valuations. (Going concern issues
are discussed in more detail shortly.) As a
result, sustainability failures in the recent
financial crisis related to inadequate pricing
of risk in products are indeed issues of
accounting for sustainability. Then, when
writing about environmental issues discussing
a 2005 report of the Millennium Ecosystem
Assessment of the United Nations, Friedman
comments:
Yet because most nations do not put a price
on [the natural resources consumed] they too
are ‘underpriced’ and therefore
overexploited—with the profits privatized
and the losses socialized. (Friedman 2009 pg.
25)
Then quoting the World Wild Life Fund’s
Living Planet 2008 Report:
‘The world is currently struggling with the
consequences of over-valuing its financial
assets, but a more fundamental crisis looms
ahead—an ecological credit crunch caused by
undervaluing the environmental assets that
100
are the basis of all life and prosperity.’
(Friedman 2009 pg. 25).
Under current accounting standards, the value
of ecological resources used would not
normally be used to measure product prices
or report values in financial reports; thus
Friedman seems to advocate a new
accounting paradigm for accounting for
sustainability that incorporates use of
environmental and social resources in
accounting measurements. In both of these
situations, as well as throughout the book,
Friedman, a well read, literate, and articulate
writer, but a non-accountant, uses accounting
terminology to link both financial and
ecological sustainability failures and attribute
the cause of both to the same phenomenon,
underpricing of assets and products sold due
to failure to consider sustainability risk.
Similar calls for a new accounting model to
incorporate external costs have been made by
others, e.g. the Accounting for Sustainability
Group (2006) and Epstein (2008).
Recent attention to so-called integrated
reporting has come from the Accounting for
Sustainability Project
(www.accountingforsustainability.org)
among other places. As discussed in more
detail shortly, this project includes initiatives
of the International Integrated Reporting
Committee (IIRC)
(http://www.integratedreporting.org/) to
develop a new reporting model that will
better reflect the interconnected impact of
financial, environmental, social and
governance factors. There is, however, no
common notion of what constitutes integrated
reporting. Many believe that ‘integrated’ is
merely including environmental and social
information along with financial information,
while others view ‘integrated’ as
incorporating sustainability factors within
accounting measurements.
3.0. Accounting for sustainability with
Respect to Traditional Accounting
When environmental (ecological), social, and
other social issues reporting are viewed from